Yield10 Bioscience, Inc. (NASDAQ:YTEN) Q3 2023 Earnings Call Transcript

Yield10 Bioscience, Inc. (NASDAQ:YTEN) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Hello and welcome to the Third Quarter 2023 Financial Results and Business Update Conference Call for Yield10 Bioscience. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference call over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum. Please go ahead.

Lynne Brum: Thank you, Sarah, and good afternoon, everyone. Welcome to the Yield10 Bioscience third quarter 2023 conference call. Joining me on the call today are President and CEO, Dr. Oliver Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser. Earlier in the noon, Yield10 issued our third quarter 2023 financial results. This press release as well as the slides of today’s presentation are available on the Investor Relations Events section of our website at yield10bio.com. Let’s turn to Slide 2. Please note that as part of our discussion today, management will be making forward-looking statements. These statements are not guarantees of future performance, and therefore, you should not place undue reliance on them.

A close-up image of a lab researcher wearing safety gear, intently working on a biotechnology experiment.

Investors are also cautioned that statements are not strictly historical constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause the actual to differ materially from those anticipated. These risks include risks and uncertainties detailed in Yield10’s filings with the SEC. The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call. I’ll now turn the call over to Oli.

Oliver Peoples: Thanks, Lynne. Good afternoon, everyone, and thanks for joining our call. Let’s now turn to Slide 3. We’re making solid progress in our technology and business plans to launch Camelina as a platform crop with a focus on the biofuel feedstock market and the high-value market for omega-3 oils. Using different Camelina varieties, both products can be produced in a closed-loop value chain, which encompasses contracting with growers and oilseed crushers and securing off-take agreements with end users for the different oils. Today, we’ll provide an update on recent accomplishments in our Camelina seed genetics to biofuel platform, our progress developing herbicide tolerant Camelina varieties, provide an update on our omega-3 Camelina program, present third quarter financials key milestones.

We will then open the call to questions. Let’s now turn to Slide 4, progress on key 2023 business goals. Over the course of 2023, we’ve achieved numerous milestones on the path towards commercializing Camelina as a platform crop for biofuels, applying herbicide tolerance and producing high-value omega-3 fatty acids in Camelina. In biofuels, our key commercial goal in 2023 has been to demonstrate the value chain from Yield10 Camelina seed to commercial offtake of Camelina grain to a customer. An important goal has been achieved as we have generated cash proceeds from seed shipments to growers and from grain shipments to a biofuel player. In 2024, we intend to continue to deliver grain for use in biofuel based on the winter Camelina grower contracts we signed this fall.

As this is a key area of our partnership, we are continuing to progress discussions to form additional partnerships in biofuels. A year ago, we signed a 1-year extension of our research and option agreement with Rothamsted to complete the omega-3 Camelina program, which has been delayed due to COVID restrictions in the UK. We’ve made good progress with our omega-3 Camelina platform in 2023, including developing project time lines and a launch plan for the first product, EPA omega-3 oil. A few weeks ago, we announced that we’ve exercised our option to finalize an exclusive global commercial license with Rothamsted. Shortly thereafter, we announced a signing of an LOI for a partnership with BioMar Group, one of the largest aquafeed producers in the world.

And I’m pleased to let you know that we have recently initiated seed scale-up activities for the omega-3 EPA8 Camelina line in Chile. The EPA8 line produces up to 20% EPA in the seed oil. Going into 2024, we anticipate the production of pilot quantities of the purified EPA oil for business development purposes and potentially larger scale field production of EPA Camelina to support our commercial development activities. Let’s now turn to Slide 5, Establishing Camelina Production. Our business plan is based on using advanced genetics to develop Camelina as a platform crop for producing oil, meal and specialty products. Today, there is a significant opportunity in the biofuels market where vegetable oil is processed into sustainable aviation fuel and renewable diesel.

Significant new demand for feedstock oil is being generated as new refineries are coming online and as new environmental commitments are being made to utilize these cleaner fuels across the globe. Based on our partner discussions, we believe biofuel sector recognizes that there is going to be a divergence of supply and demand at some point. But it’s not yet clear when exactly this will happen. For 2023, we contracted approximately 2,000 acres of winter and spring Camelina for production in Canada and in the U.S. In Canada, we engaged growers in Southern Alberta, in Northern Alberta at the Peace River region, in Saskatchewan and Manitoba. In the U.S., we contract growers in Idaho and Montana. We are very pleased with the level of grower engagement we had.

Growers shared their insights on the crop, but they’re on farm practices or opportunities they see for how they could use the crop in the rotations and compared with the economics. In particular, the growers had strong positive feedback on the effects of herbicide tolerant varieties Yield10 is developing and how those could significantly expand the opportunity and add value for them. We were also very pleased with the performance of our current Camelina varieties. For example, our WDH2 winter variety is very robust in cold temperatures and planted seed shows a built-in failsafe mechanism for bio seed that did not germinate in the fall, it survived winter and germinates in the spring. Both our winter and spring varieties require some moisture to germinate, but then demonstrate excellent drought tolerance over the growing season.

For example, we had a 160-acre field in Southern Alberta that received just 1.5 inches of rain over the entire season, but over twice the yield of neighboring mustard and canola crops grown under the same drought conditions. Camelina also showed good pest resistance, in particular, to flea beetles and in some areas, grasshoppers, which are pests in other oilseed crops such as canola and mustard. During the third quarter of 2023, our contracted growers harvested the winter and spring Camelina fields, setting in motion steps in the value chain from planting, harvest, grain delivery and off-take customer. Borders in this slide illustrate the steps of the value chain we established in Western Canada. In the third quarter of 2023, we contracted with existing and new growers and planted winter acres for harvest in summer of 2024.

As you can see in the photo to the right, there’s already been snow cover on that crop in Canada. The same closed-loop value chain can be used with the omega-3 Camelina varieties for the production of omega-3 oils in the future. I will now turn the call over to Kristi for an update on the development of HT and stacked HT Camelina varieties.

Kristi Snell: Thanks, Oli, and good afternoon, everyone. Let’s turn to Slide 6. A couple of years ago, we prioritized the development of herbicide tolerant Camelina to provide farmers with a robust weed control package supporting the broad adoption of the crop in North America. We have been waiting for regulatory responses from USDA-APHIS and the Environmental Protection Agency to enable the use of glufosinate for control of broadleaf weeds with our engineered Camelina lines. We hope that we would receive responses from the agencies before year-end, and I’m delighted this afternoon that we heard we received a positive response from USDA-APHIS stating that our glufosinate-tolerant line is not considered regulated by the agency.

Growers have provided us with positive feedback on the potential of using glufosinate-tolerant Camelina in their rotations. Historically, incorporation of herbicide tolerance traits, including glufosinate tolerance into canola, helped transform it from a marginal crop to a major crop grown on millions of acres. And we believe Camelina has the potential to follow a similar path. We have demonstrated tolerance to applications of glufosinate in three seasons of successful field tests of our lead spring HT Camelina variety. One main objective of our 2023 field testing was to collect and analyze the data on the seed composition of the herbicide tolerant lines compared to controls. Samples have been harvested for these analyses. This is required for a data package to verify the safety of the meal for animal feed through a self determination process.

We also intend to voluntarily submit this package to FDA in 2024. With field data in hand and seed scale-up activities underway, we remain on track to launch our first herbicide tolerant Camelina variety as early as 2025. Let’s now turn to Slide 7. Over the course of 2023, we made good progress with the development of stacked herbicide tolerance in spring and winter Camelina. Our stacked herbicide tolerance Camelina exhibits tolerance to over-the-top applications of glufosinate for broadleaf weed control as well as tolerance to Group 2 herbicides in soil. Camelina is very sensitive to Group 2 residues. Thus, the Group 2 trait is important to provide Camelina with tolerance to SU and IMIs herbicides that may remain in the soil from a previous season’s crop.

This past summer, we reported encouraging data from our spring field trials, demonstrating robust stacked herbicide tolerance in multiple events. The photos on the slide show examples of events with stacked herbicide tolerance that has survived herbicide treatments. Little to no growth of control plants was observed in plants without stacked HT trait and plots labeled with red dots on the slide. We are currently analyzing agronomic data from the spring field trials and are measuring seed yield and seed oil content. We expect to choose the best lead and backup lines to move forward in our pipeline. In our winter 2023 field tests, we are testing for the first time, several candidate stacked HT winter Camelina lines. Here, too, we plan to choose the best lead and backup line to move forward in our pipeline based upon field test results.

Earlier in 2023, we filed a request for regulatory status review for RSR, with USDA-APHIS to determine if the stack trait is exempt from regulation. I am pleased to say that we also received a response this afternoon from USDA-APHIS stating that our HT stack is not considered regulated by the agency. We believe the stacked herbicide tolerance lines will be a win-win for growers and Yield10, as the trait will allow robust wheat control for farmers, potentially increasing yield and revenue and providing tolerance to soil residues of previously applied Group 2 herbicides. This is expected to result in broad expansion of acres available for Camelina planting. Let’s now turn to Slide 8. As shown in the figure on the right of the slide, our stacked herbicide tolerant E3902 is a highly engineered Camelina plant.

The molecular stack in this plant is a result of the use of a variety of tools. The oil content trait in E3902, which improves seed oil content by 5%, was achieved by editing genes. We previously determined that the resulting genome edited E3902 line is not considered a regulated article with the submission to USDA-APHIS under the former IMI regulated process. To incorporate stacked herbicide tolerance, we inserted a gene that confers tolerance glufosinate containing herbicides when expressed in a plant. We also inserted another mutated gene that when expressed in a plant confers tolerance to IMIs and SUs in both Group 2 herbicides. Modern biotech tools allow this straightforward stacking of traits and we believe that the U.S. science-driven regulatory process is favorable for Camelina with stacked trait as evidenced by our recent positive decision from USDA-APHIS stating that our HT stack is not considered regulated by the agency.

Our EPA8 Camelina is also based on a molecular stack of genes, enabling EPA production in the oil. We are utilizing molecular stacking to deploy new traits in Camelina with the aim to deliver ongoing enhancements to crop performance, which, if achieved, would bring enhanced revenue and margin to the crop. Our strategy is to create a pipeline of highly engineered elite Camelina varieties to deliver ongoing performance improvements in agronomics, yield, oil content, meal profile and other desirable attributes. We are deploying these novel traits through genome editing, traditional genetic modifications and breeding to create new Camelina varieties. For example, we are deploying combinations of traits for additive effects where we are evaluating performance traits such as C3004, C3007 and C3020 and others to drive ongoing improvements to plant vigor, seed yield and oil content.

As we create new engineered Camelina varieties, we intend to protect our Camelina varieties through plant variety protection and patent filings. I’d like to acknowledge the tremendous efforts of the Yield10 technology team. Their continued diligent efforts to produce the elite herbicide tolerant Camelina germplasm that forms the foundation of our commercial Camelina pipeline for production of feedstock oils for biofuels. These herbicide-tolerant lines are expected to provide the elite Camelina germplasm background for high-level production of omega-3 oils, and in the future, PHA bioplastics. In the months ahead, we look forward to further field testing our lead commercial quality herbicide-tolerant Camelina lines, advancing the omega-3 oil technology platform, and we seek to secure favorable regulatory decisions for our elite Camelina products.

I’ll now hand the call back to Oli.

Oliver Peoples: Thanks, Kristi. Let’s now turn to Slide 9, the omega-3 market opportunity. We secured the rights to the omega-3 Camelina technology from Rothamsted in 2020 because we believe that the omega-3 oils containing EPA and DHA fatty assets represent a very significant differentiated and growing market opportunity. These omega-3 fatty acids are essential to aquaculture feed and human nutrition. As we’ve highlighted before, there continues to be major global supply constraints and disruptions in oil produced from ocean harvested fish. It’s been reported recently that the cancellation of the first Peruvian anchovy harvest earlier this year cost the industry $1 billion. And while the second anchovy harvest is going forward, the authorized catch is about 25% below 2022 levels, which is expected to extend the supply constraint on the industry.

We are also seeing positive developments on the regulatory front with Norway, the largest producer of farm salmon, regionally approving the use of a GMO omega-3 oil from Nuseed, it produces a DHA-containing oil in canola. As a result of continuing supply constraints as well as evidence of a more receptive regulatory environment, we are seeing increased third-party interest in alternative sources like the Camelina omega-3 platform. Based on the technology developed by Rothamsted, we believe that producing omega-3 fatty acids in Camelina represents a potential game changer for the Omega 3 and salmon farming industries by enabling a plant-based predictable supply of this high-value nutrition in vein. Based on our successful collaboration with Professor Johnathan Napier’s team at Rothamsted, we recently executed our exclusive option to an exclusive commercial license to the omega-3 Camelina.

Reflecting industry interest in new sources omega-3, we also recently signed a letter of intent with BioMar Group, a global aquafeed producer and industry leader to develop a collaboration on the production of omega-3 for this market. Let’s now turn to Slide 10, an overview of the omega-3 Camelina development status. On the regulatory front, we filed an RSR with USDA-APHIS in the third quarter for the EPA8 Camelina line, which produces oil with up to 20% EPA content. And we are preparing a second RSR filing for an omega-3 Camelina line that produces both EPA and DHA at levels similar to Northern Hemisphere fish oil. Using the RSR process for regulatory approval by USDA-APHIS under the secure role, we see a promising path to production of omega-3 in the U.S. We recently began scaling up EPA, Camelina seed to support business development activities and potentially additional planting in 2024.

The EPA8 oil will also have use in aquafeed formulations as it is closer to commercial production, and we can be blended with DHA oil. Rothamsted has also developed and extensively tested the omega-3 Camelina DHA1 line, which contains 10% EPA and 10% DHA in the oil. Published results on aquafeed studies carried out in previous Rothamsted collaboration with BioMar have shown that the DHA1 oil can serve as a drop in replacement for fish oil. Human clinical studies also published have shown this oil to be an effective alternative to fish oil in the human diet. We look forward to completing the commercial license with Rothamsted, and working to form partnerships with BioMar and others to advance omega-3 Camelina towards commercialization. Chuck, over to you.

Chuck Haaser: Thanks Oli and good afternoon, everyone. Let’s turn to Slide 11, third quarter results. We ended the third quarter of 2023 with $2.8 million in cash and cash equivalents. During our third quarter of 2023, we raised $3.7 million in a public offering of units, assisting of common shares and warrants. We expect that our cash on hand, including the proceeds from the offering, will support our operations into December of 2023. We are engaged in a dedicated and ongoing effort to secure additional funds in the very near-term in order to continue our operations. Our net operating cash used for operating activities was $2.6 million for the third quarter of 2023 as compared to $2.7 million for the third quarter of last year.

For the full year 2023, we continue to expect total net cash usage in the range of $12.5 million to $13 million to fund our operations, including remaining payments to our growers for the first Camelina grain harvest. Let’s now review the third quarter and year-to-date operating results. For the third quarter of 2023, Yield10 reported a net loss of $3.7 million or $0.41 a share as compared to a net loss of $3.5 million or $0.71 per share for the third quarter of the previous year. And as expected, due to the completion of our Department of Energy grant during our first quarter of this year, we did not report grant revenue during the third quarter of 2023. We did report $0.1 million in grant revenue in the third quarter of 2022. R&D expenses were $2.2 million during the third quarter of 2023.

And during the third quarter of 2023, we recorded our first $100,000 in payments received are due to us from shipments of seed and harvested grain to growers and offtake partners as an offset to R&D expense. R&D expenses in the third quarter of 2022 were $2.1 million. General and administrative expenses were consistent between the 2 years at $1.5 million for the third quarter of both 2023 and 2022. For the 9 months ended September 30, 2023, the company reported a net loss of $11.2 million or $1.70 per share compared to a net loss of $10.3 million or $2.09 per share during the first 9 months of the previous year. Year-to-date grant revenue during 2023 and 2022 from the completed DOE grant were $0.1 million and $0.4 million, respectively. Research and development expenses were $6.4 million and $5.9 million during the 9 months ended September 30, 2023, and December 30, 2022, respectively.

And G&A expenses were $4.9 million and $4.7 million during each of those periods. For more details on our financial results, I ask you to please refer to our earnings release. Oli, back to you.

Oliver Peoples: Thanks, Chuck. And let’s now turn to Slide 12, upcoming milestones. Before getting into the upcoming milestones, I’d like to comment on the accomplishments of the Yield10 team, including the heart of the press news we received from USDA-APHIS this afternoon. Congratulations to the entire Yield10 technology team who, under Kristi’s leadership, have demonstrated compelling capabilities in the development and regulatory approval of advanced Camelina varieties developed using genetic engineering. On the commercial side, we have set up a value chain in biofuels requiring seed production and grower engagement and charted a path to use Camelina as a platform crop to produce omega-3 fatty acids based on our collaboration with Rothamsted.

For the biofuel market, we are continuing partnership discussions across the biofuel value chain to support ramping up acreage of Camelina to produce low carbon feedstock oil in that market. As we work to realize our vision of leading the industry and the commercialization of differentiated Camelina varieties, our focus is on introducing HT and stacked HT Camelina varieties that are well suited to farmer rotations in North America. I was thrilled to hear from Kristi this afternoon that we have received regulatory clearance for HT and stacked HT Camelina. This is not only a major milestone for Yield10, but also a major milestone for Camelina as a new crop. These positive regulatory outcomes bode well not only for the pending review of our EPA Camelina RSR, but also for the DHA1 RSR we are preparing and for the performance traits in our pipeline.

We are building seed inventory over the winter in South America to support grower contracts. We believe that omega-3 products represent a wide array of commercial opportunities. These essential fatty acids are used in aquaculture feed, pet food, pharmaceuticals, nutraceuticals and even cosmetics. We look forward to completing the commercial license with Rothamsted, and working with BioMar and others to form a partnership to produce omega-3 oil for use in aquafeed. There have been some recent patent awards and notices of allowance for filings in our IP portfolio over the last few months. As we continue to expand and build our intellectual property portfolio. With that, I’d like to turn the call back over to Lynne for questions.

Lynne Brum: Thanks, Oli. And Sarah, we’re ready for questions.

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Ben Klieve with Lake Street Capital Markets. Your line is open.

See also 30 Most Affordable Winter Vacations in the US and 25 Cities With the Best Nightlife in the World.

Q&A Session

Ben Klieve: Hi, thanks for taking my questions. Oli, in your prepared remarks, you noted that you were continuing to progress the biofuel partnerships. But there’s no mention made of Marathon, Mitsubishi, or American in your prepared remarks. I’m wondering, first of all, if you could give us an update on the status of these three relationships. Are they all ongoing? Or have any of those parties exited discussions with you?

Oliver Peoples: So I’m not going to get into too many details, but no one has exited at this point, and we have indicated that we are in extensive discussions in the biofuel space with other parties. And so it’s a very busy area, as you can imagine. I think the issue, of course, is a small company working with these giants to get things to the point where we mutually agree on the path forward, and that’s what we’re working on. So nothing has changed with those guys.

Ben Klieve: Okay. Well, that’s good to hear. And a follow-up to that, to your comment right there. I mean, I’m wondering – I appreciate you’re not going to get in on the specifics, but I’m wondering if, on a high level, you can talk about kind of what the barriers, if any, have been to converting these relationships to a commercial or investment or a formal investment. Is there any kind of broad characterization that you can help make to give us confidence that these are going to be reaching a successful completion here soon?

Oliver Peoples: No, I think we remain very optimistic that we will achieve a successful partnership. Obviously, that takes two of us to agree on the structure, the funding and how we go about this. So no, we don’t – we can’t really provide color on individual ones, but I would say overall, the interest remains very strong. There’s been new players coming to the table, which is great. But ultimately, it’s a matter of getting the time and the decisions made within those organizations to essentially go forward on the path that we want to go forward on. So we can’t really provide too much color on individual companies.

Ben Klieve: Okay. Fair enough. Last one for me and then I’ll get back in line. You called out $100,000 of Camelina grain deliveries that were recognized as an offset to R&D in the quarter. Can you talk about the level of inventories of grain you have today or grain that’s expected to arrive here soon for future delivery over the next quarter, over the next year. And if those are going to be recognized as revenue or as continued, still as R&D offsets.

Oliver Peoples: So I think, obviously, we’re in that sort of gray zone between revenue and reimbursement. And obviously, we’re working with the audit group to make sure that we stay on the right side of the fence on that. So I’m not sure we can provide much more color. We do have additional grain and/or oil in hand, but we’re trying to essentially use that strategically versus simply to make a quick sale. I mean, we have avenues to sell that or get reimbursed for it, if you like. But our goal is to leverage that oil for other purposes. And we have discussions ongoing regarding a more strategic use of that material.

Chuck Haaser: Oli, I think we’ve also indicated we completed the harvest from the first two seasons.

Oliver Peoples: Yes, we have completed the harvest, and that’s basically where we are.

Kristi Snell: And I would add to that, Ben, that as we talked about seed scale up as well, we are positioning across our portfolio of existing Camelina lines that are commercial as well, so the HT and stacked HT that are coming behind it to build inventory to support those launches that we anticipating. So, that’s also part of the picture to be able to have sufficient seed for grower contracts.

Ben Klieve: Yes. No, fair enough. And that’s an important calculus to make at this stage. So, understood on all counts. Alright. That’s it for me. Thanks for taking my questions and I will get back in line.

Kristi Snell: Okay. Thanks Ben.

Operator: Your next question comes from the line of Anthony Vendetti with Maxim Group. Your line is open.

Unidentified Analyst: Hi. Thanks for taking the questions. This is actually Jeremy on the line for Anthony. Just one quick question, is there any overlap between all these different segments that you are in, meaning is there a limit when you grow something you are sort of have to focus on growing a Camelina for, let’s say, for the crushers or for the herbicide tolerance, or are they separate and you could really just keep growing each segment of the business and…?

Oliver Peoples: No. The way to think about it, Jeremy, is that the first generation was obviously the lines, for example, WDH2, that we started the grain contracting with or the E3902. Obviously, what’s going to happen is those lines will be [Technical Difficulty] generation two, generation three. So, they will all ultimately end up HT. It’s just that it takes time to transition through this process of scale up with non-engineered lines and ultimately replace those with the engineered lines, which have higher value, higher productivity, better integration into crop rotations. And that will be a continuous process just like Corteva or any of the big seed companies does. There is a continuous improvement process in place.

Unidentified Analyst: Okay. Understood. Thank you. And just one last question, you mentioned that you think you can get commercialization for the herbicide stacked Camelina – herbicide tolerance to Camelina in 2025. What is that – I know it’s a little early, but what does that commercialization look like to you? And how does that play out?

Oliver Peoples: Well, I mean obviously, in terms of commercialization, and I will let Kristi speak to the technology because it’s a pretty big accomplishment for a small company. Really fundamentally what it’s going to come down to, we have got other steps in the regulatory process to go through. The biggest one and the most expensive one for the point of view of the development is really the USDA-APHIS because obviously, if you are doing this work under permitted conditions, it’s very expensive. And there is a lot of these frictions and regulations around it as there should be until they deregulate it because they believe it’s safe. So, I think the reality of it is, is that we are going to move forward with this. And I think we have a great project coming up.